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APi Group Corporation (APG) Q2 2021 Earnings Call Transcript

By Motley Fool Transcribing – Aug 11, 2021 at 8:30PM

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APG earnings call for the period ending June 30, 2021.

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APi Group Corporation (APG 0.57%)
Q2 2021 Earnings Call
Aug 11, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and welcome to APi Group's second-quarter 2021 financial results conference call. [Operator instructions] Please note, this call is being recorded. [Operator instructions] I will now turn the call over to Olivia Walton, vice president of investor relations at APi Group. Please go ahead.

Olivia Walton -- Vice President, Investor Relations

Thank you. Good morning, everyone, and thank you for joining our second-quarter 2021 earnings conference call. Joining me on the call today are Russ Becker, our president and CEO; Sir Martin Franklin and Jim Lillie, our board co-chairs; and Tom Lydon, our chief financial officer. Before we begin, I would like to remind you that certain statements in the company's earnings press release announcement and on this call are forward-looking statements, which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events, or trends and other matters that are not historical facts.

These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In our press release and filings with the SEC, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, August 11, and we have no obligation to update any forward-looking statement we may make. As a reminder, we have posted a presentation detailing our second-quarter financial performance on the Investor Relations page of our website.

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Our comments today will also include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our press release and our presentation. Before turning the call over to Martin, I'd like to thank everyone that joined our conference call on July 27, announcing our agreed acquisition of the Chubb fire and security business from Carrier Global Corporation. A replay of the webcast is available, along with the presentation slides, on the Investor Relations page of our website.

It is now my pleasure to turn the call over to Martin.

Martin Franklin -- Board Co-Chairman

Thank you, Olivia. This is a very exciting time for APi. On July 27, we announced an agreement to acquire the Chubb fire and security business from Carrier Global Corporation. The transaction value was $3.1 billion, which is comprised of $2.9 billion in cash and approximately $200 million of assumed liabilities and other adjustments.

The acquisition of Chubb, which we anticipate to close around year end, will transform APi into the world's leading life safety services provider. Chubb operates in 17 countries, serves over 1.5 million customer sites, and has leading market positions in Australia, Canada, France, Hong Kong, Netherlands, and the U.K., which comprise approximately 90% of its revenue. Chubb is operated as a noncore asset. It is a leading service company, long buried inside manufacturing businesses from United Technologies to Carrier.

We are the perfect partner for Chubb. We perform many of the same services for the same types of customers in complementary geographies. Our combined global reach as the world leader in life safety services will position us as the logical one-stop shopping choice for multinational clients. With 26,000 combined skilled team members, we believe we will be able to bring the best quality of service and attract, train, and retain the best talent.

We believe the transaction will be highly accretive, with compelling synergies that will complement revenue growth through cross-selling certain products and services, and that the opportunity for margin expansion is meaningful. We're extremely excited about the value creation opportunity the newly enlarged company represents, creating the worldwide leader in life safety and security while concentrating the vast majority of the business on recurring revenue mandatorily required services. It's the thesis we had hoped to follow when we made our original investment in APi. We have great confidence in the business and the direction we're going.

And with that, I'll hand the call over to Russ.

Russ Becker -- President and Chief Executive Officer

Thank you, Martin. Good morning, everyone. Thank you for taking the time to join our call this morning. As Martin mentioned, this is a very exciting time for APi.

During today's call, I will provide a summary of our second-quarter results and comment on our transformational acquisition of Chubb, explaining to you in more detail what I see as the opportunity in front of us, before turning the call over to Tom, who will then walk through our recent results and outlook in more detail. We are encouraged by the progress made toward recovery since the height of the pandemic at this time last year. As you have heard me say on prior calls, the safety, health, and well-being of each of our employees remains our No. 1 priority.

This focus and other foundational priorities provides the platform from which we can continue to enhance shareholder value. Key highlights from our performance for the three months ended June 30, 2021, compared to the prior-year period include the following. First, net revenues of $978 million, above our previously communicated guidance of $925 million to $950 million, primarily driven by continued growth of our inspection and service offerings, as well as general market recoveries, in both safety and specialty services was offset by the decline in industrial services contracts. Net revenues, excluding industrial services, increased on an organic basis by 21.1% compared to the prior-year period.

Second, continued focus on our ongoing goal of growing recurring inspection and service revenue, which we believe helps to build a more protective moat around the business; and third, adjusted earnings per share of $0.31. As we have discussed throughout the quarter, COVID-19 continues to impact our business despite our team's agility as we manage the rise in the number of COVID-19 cases, coupled with supply chain disruptions and inflation. These supply chain issues impact our work and the work of others on certain projects and ultimately have an effect on our efficiency, causing downward pressure on margins. We expect these negative variables will be with us through the balance of the year.

However, we do not believe they limit us in achieving our long-term goals. I'm incredibly grateful for the leaders across our organization who remain dedicated to meeting robust demand across our key end markets. The significant growth in net revenues in our safety and specialty services segments was partially offset by a decline in net revenues in industrial services. This deserves some further explanation.

In industrial services, net revenues for the three and six months ended June 30, 2021, declined on an organic basis by 49.6% and 60.3%, respectively. This is due to the decreased volume resulting from the following facts: number one, the roll-off of old projects and contracts that were not replaced or renewed in 2021; second, decisions by our customers to delay and suspend certain projects; third, difficult macro market conditions. While there has been some improvements in the energy sector over the last several months, the space in which we operate remains competitive. We are still seeing a lack of proposal activity on both the capital and integrity side of pipeline transmission work.

Pipeline integrity is where we have focused the business over the last 18 months. We remain focused on being disciplined on project and customer selection, and we'll continue to resist lower-margin, higher-risk activity. We expect this trend to continue for the remainder of 2021. This is the reason we have and will continue to focus our efforts on growing the acyclical recurring service revenue aspects of our portfolio.

Before turning the call over to Tom, I'd like to spend a few minutes discussing our recently announced acquisition of Chubb. As the CEO of this company, I'd like to give you all a very clear picture of why I felt we needed to shift our M&A focus to winning the Chubb sale process. We've already talked about the strategic fit and the global leadership position we will have as a result of this combination. But at the end of the day, all of this has to result in significant value creation for shareholders, and the map here is extremely compelling.

We've already provided guidance to the investment community for revenue growth in line with our historical performance of 4% to 7% and adjusted EBITDA margin expansion to 13% by year-end 2025. With the Chubb baseline starting in 2021 at approximately $2.2 billion in revenue and adjusted EBITDA margin of approximately 10%, we expect Chubb's revenue to exceed $2.5 billion, with an adjusted EBITDA margin approximating our projected fleet margin of approximately 13% or stand-alone adjusted EBITDA of $315 million to $335 million by the end of 2025. Excluding any further acquisitions, by the end of 2025, APi should produce in excess of $800 million of adjusted EBITDA with revenue and earnings predominantly from statutorily mandated services. There will be a significant amount of operational focus to achieve this, but we have a direct line of sight to the steps required to execute on this objective.

To be clear, this will still leave Chubb with an adjusted EBITDA margin below that of APi's comparable business in the U.S. But we feel this sets the highly achievable baseline from which to build. We do not intend to lose focus on the small tuck-in opportunities in our global, local markets. However, we feel there is much value to be created by simply focusing on the enlarged platform this combination represents.

Anecdotally, some of our largest tech and data center customers have asked us if we can assist them in fire safety services for their global operating centers, and now we will have a solution for them. We believe there is a significant opportunity to leverage Chubb's 200-plus-year history of providing statutorily required and route-based services through its internationally recognized brand. Similar to APi, Chubb is a people-centered business. We look forward to welcoming Chubb's 13,000 employees to our family of businesses and supporting their development as leaders, as the business shifts from a noncore asset to a paramount strategic priority within the APi.

We believe our combined leadership team will drive toward maximizing business performance and capitalizing on future cross-selling opportunities. Our aligned incentivized performance-based culture will help drive Chubb as it has at APi. Another parallel between the Chubb business and APi is that we have life safety businesses that deliver high teens adjusted EBITDA margins, which means we also have businesses that are performing below the fleet average. We believe there is a significant opportunity to invest in regions with higher margins and provide increased support to the Chubb team in improving the businesses that are below fleet average to ultimately realize the financial profile in line with APi's safety services segment.

I would now like to hand the call over to Tom to discuss our financial results and outlook in more detail. Tom?

Tom Lydon -- Chief Financial Officer

Thanks, Russ, and good morning. I will review our consolidated results, segment-level performance, and strong balance sheet before turning to our outlook. As Russ mentioned earlier in the call, net revenues, excluding industrial services, for the three months ended June 30, 2021, increased on an organic basis by 21.1% compared to the prior year. For the six months ended June 30, 2021, net revenues, excluding industrial services, increased on an organic basis by 11.7% compared to the prior-year period.

Adjusted gross margins for the three months ended June 30, 2021, was 24.2%, representing a 27-basis-point decline compared to the prior year, driven by supply chain disruption and inflation causing downward pressure on margins, partially offset by improved mix in safety services. For the six months ended June 30, 2021, adjusted gross margins was 23.7%, representing a 27-basis-point increase compared to the prior year, due to the factors mentioned for the second quarter. Adjusted EBITDA margin for the three months ended June 30, 2021, was 10.8%, representing a 106-basis-point decline compared to the prior year, due to supply chain disruption and inflation causing downward pressure on margins and less contribution from joint ventures in specialty services than the prior-year period. For the six months ended June 30, 2021, adjusted EBITDA margin was 9.4%, representing a 39-basis-point decline compared to the prior year, due to the factors mentioned for the second quarter.

We continue to focus on driving strong free cash flow, and our balance sheet and liquidity profile remained strong. As expected, given the comparative swings in COVID-related business cycle, as well as our normal historical experience, most of our cash from operations was absorbed by a rebuild in our working capital base. For the six months ended June 30, 2021, adjusted free cash flow was $20 million, representing a $203 million decrease, compared to the prior year of $223 million, and our adjusted free cash flow conversion rate was approximately 12%. As we discussed in our investor day in April, the decline in cash flow was expected as revenues rebounded post COVID-19, and we use cash to fund working capital to drive increased service revenue and higher margins.

Working capital increased in line with historical trends experienced during the first half of the year. In addition, the decline was driven by a $34 million increase in cash paid for income taxes, largely driven by the timing of a payment related to the prior year. As of June 30, 2021, we had $686 million in cash and cash equivalents and no outstanding borrowings under our $300 million revolving credit facility. I will now discuss our results in more detail for our three segments, beginning with safety services.

Safety Services net revenues for the three months ended June 30, 2021, increased on an organic basis by 26.4%, primarily, due to strong recovery of our HVAC services businesses and continued growth in inspection and service revenues across the majority of our markets. For the six months ended June 30, 2021, net revenues increased on an organic basis by 12.6%, due to the items mentioned for the second quarter. Adjusted gross margin for the three months ended June 30, 2021, was 31.8%, consistent with prior-year period. For the six months ended June 30, 2021, adjusted gross margins was 31.7%, representing a 63-basis-point increase compared to the prior year, due to improved mix of work toward inspection and service revenue, combined with disciplined project and customer selection.

Adjusted EBITDA margin for the three months ended June 30, 2021, was 14.6%, representing 198-basis-point increase compared to the prior year, due to leveraging of our SG&A costs on the increase in revenues period-over-period. For the six months ended June 30, 2021, adjusted EBITDA margin was 14.1%, representing a 153-basis-point increase compared to the prior year, due to the leveraging of our SG&A costs on the increase in revenue period-over-period and factors I mentioned as drivers of gross margin. Specialty services. Specialty services net revenues for the three months ended June 30, 2021, increased on an organic basis by 18.9%, primarily due to increased demand and timing of our fabrication and specialty contracting services, partially offset by lower volumes in our infrastructure and utility businesses.

For the six months ended June 30, 2021, net revenues increased on an organic basis by 13.4%, due to the factors mentioned for the second quarter, as well as project deferrals and job site disruptions, driven by unfavorable weather conditions in the first quarter. Adjusted gross margins for the three months ended June 30, 2021, was 17.1%, representing a 180-basis-point decline compared to the prior year, due to supply chain disruptions and inflation causing downward pressure on margins. For the six months ended June 30, 2021, adjusted gross margin was 15.2%, representing an 81-basis-point decline compared to the prior year, due to the reasons mentioned for the second quarter and lower productivity due to unfavorable weather conditions in the first quarter. Adjusted EBITDA margin for the three months ended June 30, 2021, was 11.6%, representing a 305-basis-point decline due to the impacts mentioned for gross margin and less contribution from joint ventures compared to the prior-year period.

For the six months ended June 30, 2021, adjusted EBITDA margin was 9.5%, representing a 112-basis-point decline compared to the prior year, due primarily to the items noted for the second quarter. Industrial services. Industrial services net revenues for the three and six months ended June 30, 2021, declined on an organic basis by 49.6% and 60.3%, respectively, due to the factors Russ mentioned earlier in the call. Adjusted gross margins and adjusted EBITDA margin for the three months ended June 30, 2021, was 4.4% and 2.9%, respectively, compared to 18% and 15%, respectively, in the prior-year period.

The decline was primarily driven by unabsorbed costs for leased equipment, due to lower volume. For the six months ended June 30, 2021, adjusted gross margins was 0, and adjusted EBITDA margin was negative 4.3%. 2021 guidance. Our full-year guidance for 2021 remains unchanged and does not reflect any contribution from the upcoming Chubb acquisition.

We expect adjusted net revenues for 2021 to range between $3.65 billion and $3.75 billion as we focus on driving inspection and service revenue, combined with the continuing but smaller decline in our industrial services segment and our disciplined approach to project and customer selection. Also, as we have said previously, while we do not have anything built into our budget for an infrastructure build or stimulus that would incentivize investment in the renovation of existing infrastructure, there are certain aspects of our business that would benefit, and we are pleased to see the recent progress in the Senate toward such legislation. We expect adjusted EBITDA for 2021 to be at the lower end of our range or approximately $405 million, primarily driven by supply chain disruptions and decrease in our industrial services segment, and the ongoing impact of COVID-19 pandemic. We expect capital expenditures to be approximately $55 million, and normalized depreciation continues to be approximately $60 million.

Our cost of capital is approximately 5%, and our adjusted mid and long-term effective tax rate remains approximately 21%. And our estimated fully adjusted diluted share count is approximately 205 million. As mentioned earlier, this year, we expect our adjusted free cash flow conversion rate for 2021 of approximately 70% as we build working capital from the reduced prior-year base. Our back-half cash flow build in '21 is consistent with that of our more traditional run rate.

I will now turn the call over to Jim.

Jim Lillie -- Board Co-Chairman

Thanks, Tom. Good morning, everybody. Our progress this year is meaningful, and we are even more excited by the long-term future of APi following the strategic Chubb transaction. While COVID-19 continues to impact our business, as well as those of our customers and suppliers, we remain confident in our ability to execute on our long-term goals for the business.

The announced Chubb acquisition meets our previously stated key strategic investment criteria. Chubb has a history of strong free cash flow generation. They are leaders in their niche markets and have an experienced leadership team. The acquisition will expand our geographical reach and will strengthen our protective moat through greater statutorily required recurring revenue, with 50% plus of our revenue coming from service after the transaction closes.

We are enthusiastic to invest behind the Chubb team and support their operations and supplement them with our existing operations. We believe there is significant future value creation opportunity as we combine our two organizations and realize revenue, as well as cost synergies. In addition, we are excited to add Blackstone as a partner. As many of you know, Blackstone has a significant global property portfolio, which we expect to provide the combined company new customer opportunities in multiple markets.

Blackstone's real estate total commercial portfolio is comprised of over 1.2 billion square feet of real estate globally, and we are excited to compete for their business. Before opening the call for Q&A, I'd like to provide some additional color regarding model assumptions for Chubb. As noted on our previous call, we look forward to sharing more details once the transaction has closed. As Martin mentioned, the transaction value is $3.1 billion, which is comprised of $2.9 billion in cash and approximately $200 million of assumed liabilities and other adjustments, some of which will be trued up at closing.

These deductions include deductions for known and contingent liabilities, all of which have been quantified through our diligence process. For the trailing 12-month period ending March 31, 2021, despite headwinds faced in navigating the global COVID-19 pandemic and emerging supply chain disruptions, Chubb had revenue of approximately $2.2 billion and adjusted EBITDA of approximately $213 million, which we believe is a strong base from which we can build. The transaction is expected to close around year-end 2021 and is subject to a consultation process and standard regulatory approvals. It will be funded through a combination of cash on hand, perpetual preferred equity financing, and debt.

For the $800 million perpetual preferred equity financing, there is a 5.5% annual dividend payable on a quarterly basis in cash or at the company's option in kind by payment of additional shares of common stock. We will decide at the time when the dividend is due whether we pay in cash or stock base on the company's cash flows and balance sheet position. The annual dividend amount is expected to be approximately $44 million. The perpetual preferred may be converted at any time by the holder into common stock at a conversion price of $24.60.

The company has the ability to force conversion at any time if the volume-weighted average share price of our common stock exceeds 150% of the conversion price or $36.90 per share for 15 consecutive trading days. For the purposes of future modeling, it's important to reflect either one, the cash payment; or two, the preferred as converted to avoid double counting along the way. We expect to be at a pro forma net leverage ratio of around 4.25 times at closing, with the goal of returning to below three times net leverage expeditiously. Our near-term focus will be on closing the transaction and then deleveraging through our asset-light, high free cash flow conversion operating model, which, this year, we expect will deliver cash in excess of $275 million.

We will do all of this while continuing to invest in our leaders and our business process improvements. I would now like to turn the call back over to the operator and open the call for Q&A before Russ concludes the call with an additional statement at the end of the Q&A period. Operator, please open the lines.

Questions & Answers:


Operator

Certainly. [Operator instructions] And we will take our first question from Julian Mitchell with Barclays.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Hi. Good morning. Maybe just wanted to circle back to the free cash flow aspect. Maybe give us a bit more clarity as to how the big working capital pieces will move in the second half to get that conversion up.

And also, perhaps when you're looking at 2022, assuming more normal working capital dynamics, assuming that Chubb is integrated early in the year, what sort of free cash flow conversion should we assume for next year?

Tom Lydon -- Chief Financial Officer

Yeah. So Julian, let me address the cash flow for this quarter. Right in line with our expectation is where we came in. And if you'd look back to 2019 that we shared with you last year, last year's second quarter was dramatically impacted by the COVID reduction in revenue as we brought down all of that working capital.

So right in line with our historic flow and what we had budgeted, we came in at the end of the quarter. Historically, we see that the cash comes in through the second half, and that will happen as projects ramp up. And as our revenue in the fourth quarter, projects are ramping up, and you get -- run into the holiday weeks, etc. And so it's a normal time where our cash comes in, and we're expecting that same flow this year.

I think you've seen -- discussed in the past on Chubb's cash flow conversion rate. At their disclosed amount is 90%, and we'll be blending theirs with ours and expect it to be consistent. But we'll have more details on that as we get closer to the closing.

Jim Lillie -- Board Co-Chairman

Julian, it's Jim. I think, Tom, correct me if I'm wrong, but if memory serves me correct, we did about $11 million in free cash flow in the second quarter of 2019 versus the $20 million this year. And I think our conversion rate was much higher.

Tom Lydon -- Chief Financial Officer

Yeah. So second quarter, slightly different, Jim, but you're close. About $22 million conversion in 2019 versus $20 million this year, so right on line, and a 13.9% conversion in 2019 versus 12% conversion this year. And when you think of the growth we've had because of coming off of a lower COVID base this year, that's very, very positive for us.

Jim Lillie -- Board Co-Chairman

And I think, Julian, you had a question about 2022. We'll go through the budgeting process, but I think we said on our last call that Chubb historically had a 90% free cash flow conversion. Theirs was EBITDA minus capex divided by EBITDA, and so we don't see any real trending change in that. And our historical is 80%-plus.

So still very strong free cash flow conversion. But when we do the budget, and we give guidance when the deal closes, we'll give you more color.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Thanks very much for that detail. and maybe my second question, just looking at the EBITDA margin. So I think the full-year guidance implies EBITDA margins are up slightly year on year in the back half. I just wanted to check that.

And more specifically, within specialty services, you had the margin pressure in Q2. How substantially does the margin sort of swing around in the second half in your guidance?

Russ Becker -- President and Chief Executive Officer

I think that -- Julian, this is Russ. I think we're going to continue to see margin pressure in specialty services through the remainder of the year, and we're going to be battling through cost of goods, inflationary pressure, as well as supply chain disruptions, that are going to continue to cause us some headaches. And we're going to have to just keep on battling. I think that we feel really good about what we're seeing in safety services, and we see positive results there and improvement.

But we're going to continue to battle through the second half.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Thanks. And the overall firmwide adjusted EBITDA margin, at the sort of guidance midpoint, that should be up slightly year on year in the second half. Is that fair?

Russ Becker -- President and Chief Executive Officer

Fair.

Julian Mitchell -- Barclays Investment Bank -- Analyst

Great. Thank you. 

Russ Becker -- President and Chief Executive Officer

Thank you. 

Operator

And we'll take our next question from Markus Mittermaier with UBS.

Markus Mittermaier -- UBS -- Analyst

Hi Good morning, everyone. Maybe I'll start with Chubb. Russ, thanks so much for providing your thoughts here on how you think this will develop to 2025. I think you said $2.5 billion getting the margins to sort of the current APi fleet average of 13%.

Can you comment a little bit on the sort of visibility you already have? I know it's early days. Is this mostly kind of project and customer selectivity like we've seen you do, obviously, on the industrial side of your business? How to get that margin up? Or are there specific programs that you already think about? And then connected to that, obviously, it's still 100 basis points below where your current life safety business is. So how are you thinking about this? And how much comfort do you have?

Russ Becker -- President and Chief Executive Officer

So I would start by saying we're very confident that we will be able to work with Chubb's leadership team and achieve these goals. We wouldn't put them out there if we didn't have great confidence. They are under Anthony Brennan's leadership. They are really pushing to a branch-focused model, which is very, very similar to the focus and how we've built our life safety and safety services business and having the ownership at the branch level.

And so for me, it is really a combination of a lot of different things, but it's going to start with the individual branch leadership, making sure that we have the right people leading these different branches and starting to make investments in their people as leaders. They haven't had that level of investment. We think that that's something that we can bring to them very, very quickly as we come out of the gates here. So we have really good confidence that these margin expansion goals are achievable.

And just like here, Markus, when we achieve those goals, we're going to just move the goalpost, and we're going to keep on moving forward with improvements. But there's a tremendous amount of opportunity for us to really help the Chubb team improve the business.

Markus Mittermaier -- UBS -- Analyst

Great. Thank you. And then on the $200 million of contingent and known liabilities, just making sure here, what's being transferred over from Carrier is the service business largely, not the underlying fire manufacturing. The background of the question is obviously around PFAS.

How confident are you that there isn't sort of like a long-guided liability that moves over here with that transaction?

Russ Becker -- President and Chief Executive Officer

You are correct. We have purchased the services side of the business. They are keeping the, so to speak, manufacturing, the product manufacturing piece of the business. And the PFAS liabilities stayed with UTC back when the Carrier was carved out of United Technologies.

So we're very comfortable with the, so to speak, environmental.

Markus Mittermaier -- UBS -- Analyst

OK. Thank you very much.

Operator

And we will take our next question from Andy Wittmann with Baird.

Andy Wittmann -- Baird -- Analyst

Great. Thanks, and good morning. I just wanted to clarify some questions from the prior Chubb call regarding the EPS accretion that you articulated. And correct me if I'm wrong, please, but I think you guys said there was going to be like, I think it was $0.35 of accretion.

Maybe that number is wrong. But if you could, please, it would be helpful to understand the level of depreciation, interest expense, and the share count that underpins that, recognizing here that it gets complicated with the preferred dividend and the convertible share on that. I just think, trying to understand that assumption would be helpful for everyone.

Russ Becker -- President and Chief Executive Officer

Can you repeat the question?

Andy Wittmann -- Baird -- Analyst

Yeah. I was just hoping that you could bridge us a little bit -- with a little bit more detail on the Chubb accretion that you articulated on the last conference call. If you could just comment again what that EPS accretion you're commenting as out of the box. I understand your long-term numbers today, but I think you made some comments around out-of-the-box EPS accretion.

And so depreciation, interest expense, and then the share count or the preferred dividend that underpins that $0.35 of accretion, I think, would be helpful to understand.

Martin Franklin -- Board Co-Chairman

I don't have to break down in front of me, but it was about -- I think in the last call, we said it was about 25%. And it's actually, I think, in the 26%, 27% range. It was 26%, 27%, but I think we said on the call, 25%. I'll have to come back and give you the breakdown of those things because I just don't have them in front of me right now.

Russ Becker -- President and Chief Executive Officer

Well, their depreciation runs at about 18 -- or their capex is about $18 million. And I would say they're probably underinvested in the business to a certain degree.

Jim Lillie -- Board Co-Chairman

So Andy, I think going back to what we said is we were looking at approximately the $213 million of EBITDA. We were looking at our existing share count, and that's where we came up with the -- again, I can't remember the number, but call it $0.34, $0.35, $0.36 or so.

Andy Wittmann -- Baird -- Analyst

OK. Yes, that's what I thought you said on the call was $0.35 and you just said 26, so I'm trying to -- that's what I'm trying to get to clarify.

Martin Franklin -- Board Co-Chairman

$0.35 and 26%.

Andy Wittmann -- Baird -- Analyst

26% and $0.35? Sorry, that was broke up a little bit. Was that what you said?

Martin Franklin -- Board Co-Chairman

Yes.

Andy Wittmann -- Baird -- Analyst

OK, OK. That makes sense then. OK. So then just then, Russ, on the inflation and supply chain challenges that you saw in the quarter, I guess, I've always thought of your projects as relatively short between the bidding and the execution of the projects.

I understand the inflation is rapid today. How much insulation do you get from inflation, just given the smaller average project size, as well as the proximity and bidding to execution of the jobs? And I guess, inside the backlog that you have today, are you -- how much of kind of older pricing is there for jobs that maybe had an extended duration between when they were bid and when they're executed? And if you could just talk a little bit about the nature of some of the supply chain disruptions, specific products that maybe are grabbing you, and what you can do, if anything, about obtaining those products.

Russ Becker -- President and Chief Executive Officer

Sure. A lot there. And I'm going to start by reminding you that we don't bid our work. We propose on our work, and because we want to make sure that we're being chosen by our customers because of the value that we bring to the table.

And safety services, I would say, is more insulated than specialty services because the average project size in safety services is less than $10,000, so those are much quicker hitting. But steel pipe prices have basically doubled, and we had to make sure that we've protected ourselves and our proposals and in our contracts to make sure that we've got the right language built into those documents to allow us to get escalation when necessary. In specialty services, even though we've been very proactive with our businesses and making sure, again, we're protecting ourselves in our proposals, oftentimes, the materials are provided by our customers. And their lack -- or the lack of availability, like, say, for fiber optic cable and those types of things has negative impacts on your ability to efficiently execute on your work.

And managing your workforce and managing your people, when the product is showing up late or not showing up for when it's supposed to show up makes it very difficult to manage your work. And that's happening really on many, many fronts. You're seeing that with pipe. You're seeing that with, like I said, fiber optic cable.

We have one manufacturing business. Joist and deck is out nine months. So managing through those challenges, people have to be on their toes, and they have to be very proactive as they're looking at their business. I can't quantify what in our backlog is -- how much of that risk would be in our backlog from -- our backlog turns very quickly.

Our backlog has been very strong. And I'd like to believe that because we have been very proactive in talking with our businesses and giving our businesses guidance on where we think commodity prices are going that we are protected and that we've done a good job. I'm sure there's instances that we haven't. But in general, I feel really good about it.

Andy Wittmann -- Baird -- Analyst

Great. Then just, I guess, one final follow-up on that is, in the case where your customers are procuring your materials and they can't get them, do you have any recourse to the customer for change orders regarding the cost that you incur from their delays?

Russ Becker -- President and Chief Executive Officer

Yeah. For sure, you do, but that's a delicate balancing act, too. It's your customer, and so you have to make sure that you're being fair with them. You want to make sure that they're being fair with you.

And so -- but it is a balancing act. And you're inevitably going to have customers that are going to push back on you and try to make their problem your problem. But that's where it's so important for our business leaders, they have positive relationships with their customers so that they can work through those challenges. They need to be very proactive in leading their work versus just reacting to their work, and there is a significant difference there.

But it ultimately comes down to the relationship you have with that client.

Andy Wittmann -- Baird -- Analyst

Got it. OK. Thank you very much. Have a good day. 

Operator

And we will take our next question from Kathryn Thompson with Thompson Research Group.

Kathryn Thompson -- Thompson Research Group -- Analyst

Hi. Thank you for taking my question today. Just first focusing on the specialty end market -- the specialty services, rather. Could you give more color in terms of the end market demand? And what is driving demand overall? Really looking for additional color from the end market but also a regional standpoint.

Thank you.

Russ Becker -- President and Chief Executive Officer

Well, our end markets in the segment remains strong. We continue to provide services to public utilities, private utilities, telecom providers, and such. And really, we feel that the end markets we're serving remain very strong, even with some of the opportunities that we have in front of us sliding out to the right. So as an example, one of our businesses does a fair amount of what I would consider grounding and interconnecting work with wind farms.

And a number of their project-related opportunities slid into 2022. And I think some of that just was some reticence with the new administration and what was going to happen with certain tax credits and some of that work slate. It's not going away, but it's going to push into 2022. So again, we feel very good about the end markets that we're serving.

It's just that there's some choppiness on when we're going to be able to deliver those services. It kind of like the infrastructure bill as it comes forward and you look at where the buckets and there's going to be $65 billion of broadband investments. Well, that's going to be a positive for our business. But if those dollars won't start flowing through into the system until the back half most likely of 2022.

So -- but we feel great about the end markets that we're serving in the segment.

Kathryn Thompson -- Thompson Research Group -- Analyst

OK. Any color or thoughts in terms of the infrastructure -- or proposed infrastructure plan, if it were to pass, what that may mean for APi?

Russ Becker -- President and Chief Executive Officer

Yeah. So actually, Olivia did a nice job of breaking down the buckets of the, I guess, the first Senate bill that passed on a bipartisan basis late yesterday versus the one that passed on a partisan basis on the middle of the night. But there's a number of opportunities in areas that will benefit us. The electric grid and power infrastructure bucket, there's $70-plus billion allocated there.

I just mentioned the broadband investments. There's going to be $55 billion allocated for water systems and infrastructure, which is an area that we participate in, in the upgrading and the renewing of the existing potable water infrastructure that's in place, primarily for us in the East Coast. And I also would tell you that a rising tide floats all boats. And the dollars that are being spent in other places where like ports and waterways is not a place that we participate in, but other firms will put their resources to work in other parts of the infrastructure bill that will create opportunities for us to take more market share with our existing customers.

So it's a positive, in general, for the industry, which will create an opportunity for us to do more work with our -- some of our existing customers.

Kathryn Thompson -- Thompson Research Group -- Analyst

OK. Great. And then final question for today, just a broader question for industrial services. In light of the proposed Chubb acquisition and also, as you noted today, the continued rightsizing of industrial services, where do you see this business as a percentage of mix going forward? And what are your mid- to long-term goals for this division?

Russ Becker -- President and Chief Executive Officer

Yeah. Thanks, Kathryn. So we continue to be very, very disciplined with the opportunities and the work that we're pursuing in industrial services. And there's nothing worse than being slow and being slow with low-performing work.

And so we have been very disciplined in how we're looking at the opportunities that are in front of us to make sure that the work that we do execute, we can make a reasonable profit in gross margin on. My hope is that we are at the bottom and that we are going to start chipping away and demonstrating improved strong results and that we can get back to a spot where the business is complementary to our margin goals. And we need to continue to evaluate what's there and what we're doing there. And if we need to do some pruning, then we need to do some pruning.

But we need to continue to be at the top of our game and looking at what's going on in that piece of the business.

Kathryn Thompson -- Thompson Research Group -- Analyst

Great. Thank you very much.

Operator

And we have time for one more question before turning it back to Russ for a closing statement. And we will take our final question from Jon Tanwanteng with CJS Securities.

Jon Tanwanteng -- CJS Securities -- Analyst

Hey, good morning, guys. Thank you for taking my questions. My first one, I don't know if anyone asked this before, but is there any color on the phasing of revenue earnings as we head into the second half between Q3 and Q4. Should we expect more pressure on revenue and earnings in the near term as you deal with the COVID headwinds and things that are going on now and maybe more release in the fourth quarter? Or if not, what are the puts and takes that we should be considering?

Tom Lydon -- Chief Financial Officer

Great question, Jon. Typically, we've kind of seen third-quarter view of 27% to 28% of our revenue quarter and then 24% to 25% in the fourth. Just with the way things are moving and the supply chain things, those two quarters may be a little more balanced than we've seen in the past. And so we're working through that.

And as we march through the quarter, we'll provide more insight to you as we have it.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. That's very helpful. And then second, I was hoping you could dig deeper into the Blackstone opportunity a little bit more. What percentage of their portfolio do you cover today? And kind of what is the win rate usually when you approach a new property to get their business? How much of that can we expect you to cover over time?

Russ Becker -- President and Chief Executive Officer

Well, that's a tough question. But I'm going to give you an example. So in the Memphis marketplace, we currently provide inspection and service work at approximately 20 of their distribution facilities in that marketplace. And from what we know today, they have an additional 20 facilities in that marketplace.

Now -- so we think in that one particular market, there's an opportunity for us to do, so to speak, twice as much with them. And -- but the caveat is that we need to go earn their business. We can't expect them to just give us their business. It's no different than with our other national-based and now international-based customers.

Like we need to go and earn it and win it. And we think the opportunity is huge. Blackstone has a great track record of opening up their portfolio of companies to each other and working across sister company lines. And we think that that's an opportunity.

But we're not afraid of the challenge, and we expect that we're going to go and we're going to win their business, not have it handed to us.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Got it. Thank you for that color, and thanks again. 

Operator

And I would now --

Jim Lillie -- Board Co-Chairman

Thanks, Jon. I'm sorry, operator, I just stepped on your feet and did your job. Well, since I've done it, Russ, we'll turn it over to you for one final comment.

Russ Becker -- President and Chief Executive Officer

Yes. Thank you. Thank you, everybody. Before we say goodbye, this really is a personal message from all of us.

It is with a very heavy heart, I have to inform you of the untimely death of Joe Walsh, our head of specialty services, who many of you met during our investor day. Our shared condolences go out to Joe's family and to all of those who are fortunate enough to know him. He was a widely respected man and was a quintessential APi leader, and his presence will be missed. From an organizational standpoint, we have a succession plan in place.

However, for now, our thoughts are with Joe's family and the entire APi family as Joe's impact was far-reaching, both within our organization, as well as throughout the industry. I want to thank everybody again for joining the call this morning. We very much appreciate you taking the time to be with us. Thank you for your continued interest in APi.

We look forward to keeping you updated as we move through the rest of the year. This is truly a very exciting time for the company. So thank you.

Operator

[Operator signoff]

Duration: 34 minutes

Call participants:

Olivia Walton -- Vice President, Investor Relations

Martin Franklin -- Board Co-Chairman

Russ Becker -- President and Chief Executive Officer

Tom Lydon -- Chief Financial Officer

Jim Lillie -- Board Co-Chairman

Julian Mitchell -- Barclays Investment Bank -- Analyst

Markus Mittermaier -- UBS -- Analyst

Andy Wittmann -- Baird -- Analyst

Kathryn Thompson -- Thompson Research Group -- Analyst

Jon Tanwanteng -- CJS Securities -- Analyst

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